|FROM ||Ruben Safir
|SUBJECT ||Subject: [hangout] Glipse of the Future of Music
Apple Said to Discuss a Music Deal, but Not Too Seriously By GERALDINE
FABRIKANT with LAURA M. HOLSON
Apple, the iconoclastic computer maker, has discussed an investment in
Universal Music, the world's largest recording company, people close to
the discussions said yesterday. These people, however, also cautioned
that a deal was unlikely to be concluded.
Universal Music is among the American entertainment assets that its
parent, Vivendi Universal of France, is considering selling as it tries
to pare down a huge debt. Potential suitors were seen as coming from an
investor or player in entertainment. But Apple's interest came out of
the blue. Advertisement
The idea of an investment grew out of talks over a new online music store
that Apple is planning to introduce. Apple, which has had great success
with its iPod MP3 portable music device, is embarking on its own online
music store, which could deliver music to consumers for a small price
in an effort to thwart piracy.
The online store could be introduced soon. After months of wrangling,
all five major music companies finally agreed this week to allow Apple
to license their music for a fee for the venture, according to a music
executive. If the venture pans out, it could help stem piracy and benefit
the music industry.
The talks between Apple and Vivendi covered the concept of buying
as much as a third of the music unit, according to people close to
the discussions. But the talks appear to have been just exploratory
discussions that did not go far.
"Vivendi has a very strong interest in generating as much perceived
interest in all of these assets as they can," one investment banker said.
The notion of having Apple buy all of Universal Music was also discussed,
but the likelihood of Apple's making that offer seemed remote to the
people close to the discussions yesterday.
And news that Apple might be interested in Vivendi Universal's music
unit did not go over well with investors.
Shares of Apple closed down 8 percent, at $13.20 a share. The Los Angeles
Times reported yesterday that Apple was in talks to buy Universal Music
for as much as $6 billion.
American depository receipts of Vivendi were little changed yesterday,
ending down 4 cents, at $13.86.
"It is interesting to note," said Michael Nathanson, a music analyst with
Sanford Bernstein & Company, that Vivendi's shares "did not respond to the
news, suggesting that media investors did not take it seriously, because
they are so aware of how bad the fundamentals of the music business are."
Both Vivendi and Apple declined to comment.
Several people close to the discussions said it seemed unlikely that
a deal would ultimately happen. One executive who talked recently with
Steven P. Jobs, Apple's chief executive, about the music business said:
"It makes no sense. He didn't seem like a buyer of music."
Indeed, the new plan for an online store seems to eliminate Apple's need
to have any interest in the music business because it would have access
to the music. "Why buy the cow when you already have the milk?" one
executive close to Apple's planning said.
Any close relationship with the Universal Music Group would also be
problematic for Mr. Jobs because the other labels would surely balk at
doing business with Apple if it controlled their largest competitor.
It is also bound to rile Wall Street, where analysts do not see much
benefit to Apple's having even an investment in the music unit.
Other companies, too, have toyed with the idea of buying a music company
and balked. Microsoft has considered an investment, particularly during
the go-go days of the Internet boom, but so far has shied away.
Global compact disc sales have dropped as much as 25 percent since 2000,
according to industry executives. Sony, the Japanese hardware maker that
owns the Sony Music Group, for one, has lost about $150 million on the
music division in the last nine months.
Charles Wolf, who follows Apple for Needham & Company, said that an
investment in Universal Music "does not play to the company's competitive
"That is software design," he added. "They have a suite of software
programs that provide a digital entertainment. The part that I find
difficult to understand is that they are not in the content business
and they know nothing about it."
If there is a rationale for such an investment, it may be that Apple
believes that its new online music store is set to stem the damage from
piracy and that the music business is poised for a turnaround.
Universal has indicated for the last two months that it is interested
in selling its media assets to help shave $7 billion off its debt.
So far, no media buyers have indicated any interest in Universal
Music. Indeed a group of investment firms led by Marvin Davis, the
77-year-old investor, has emerged as the only buyer for the unit.
Still if Apple were to acquire a stake in the music unit, that investment
would not preclude a sale of the remainder of the unit to another buyer,
like Mr. Davis, several experts said yesterday.
And if Mr. Davis did not go forward with his bid, Vivendi Universal
would still have raised some capital from Apple and then could raise the
balance of the money it needs by selling other entertainment assets like
USA Network, Sci-Fi Channel and the film studio.
Both Liberty Media and Viacom are said to want the company's cable
networks, and Liberty is said to be interested in Vivendi Universal's
movie studio as well.
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